18 Apr , 2022 By : Kanchan Joshi
HDFC Bank shares were trading more than 2% lower at Rs1,427 apiece on the BSE in Monday's opening deals after the private lender reported a nearly 23% year-on-year (YoY) jump in standalone net profit to Rs10,055 crore for the March quarter on lower provisioning.
The bank’s net interest income (NII), difference between interest earned and interest expended, grew 10% to Rs18,872 crore. Its provisions declined 29% from the year-ago quarter whereas net interest margin, a key measure of profitability, was down 20 bps YoY and 10 bps QoQ at 4%.
HDFC Bank reported a slight miss on PAT due to continued weak core profitability, which was dragged by weak margins/fees and additional contingent provisions, highlighted analysts at brokerage Emkay. They have a long-term Buy rating on HDFC Bank shares, given the recent correction, with a target price of Rs1,950 ( Rs2,050 earlier).
“In our view, lifting of the RBI’s restrictions on card/digital initiatives, management’s guidance to reaccelerate retail credit growth and focus on risk-adjusted margins should be long-term positives. As far as the merger is concerned, the bank/HDFCL will have time (2-3 yrs) to moderate regulatory drag by building buffers in both entities," Emkay's note stated.
HDFC Bank’s asset quality improved in Q4 with gross NPA declining 15 bps YoY and 9 bps sequentially to 1.17%%. Its net NPA ratio was also down 8 bps YoY and 5 bps quarter-on-quarter (QoQ) at 0.32%.
Another brokerage Nirmal Bang has cut its earnings estimates by 4-5% over FY23-24E on account of lower NIMs, lower treasury gains and higher opex (as retail growth picks up). It has also reduced its valuation multiple on the stock to account for the systemic increase in interest rates.
Though, it has maintained its positive outlook on HDFC Bank with a target price of Rs2,042. Nirmal Bang believes that the impending merger with HDFC Ltd will be value accretive for shareholders.
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